Lithuania’s approach to growing the defence sector – a model for small nations

This article was written by Šarūnas Genys, Manufacturing Team Lead at Invest Lithuania

Europe’s defence industry is transforming like it hasn’t been for decades. The European Union is planning to invest €800 billion in defence manufacturing. The UK has announced major capacity increases. With this in mind, the question facing smaller nations like Lithuania is clear: will we sit and watch as these developments unfold, or will we put our backs into shoring up continental security?

Lithuania has made its choice – it wants to be an active player in the defence industry. More than that, our approach offers valuable lessons to smaller nations wanting to make a meaningful contribution to the continental renaissance in defence – all while building genuine competitive advantages for themselves.

Pairing a geographical advantage with political commitment

Lithuania’s position on NATO’s eastern flank isn’t just a geographical fact, but also a strategic asset. We’re currently hosting over 2,500 Allied soldiers on rotation, including NATO Enhanced Forward Presence forces, and a German brigade scheduled for full deployment by 2027 will bring in nearly 5,000 additional troops. The enhanced military presence is also generating natural demand for local services and supplies while providing direct access to end users who can provide real-world feedback on operational needs.

But a mere geographical advantage means little without commitment. Lithuania has backed its strategic importance with substantial financial investment. In 2024, over 45% of our National Defence Budget – nearly €1 billion – was dedicated to modernising the Lithuanian Armed Forces. Even more significantly, we’ve pledged to spend over 5% of our GDP on defence until 2030, thereby sending a clear signal to international partners about our long-term intentions.

This spending is also set to boost our overall industrial capacity. For instance, given the approximately €200 million reserved for drone procurement over the next 6 years, both domestic manufacturers and international partners with operations on Lithuanian soil will be able to enjoy predictable demand for their products.

Lithuania is also procuring military equipment — including drones, anti-drone systems, optical surveillance devices, and laser target designators — from domestic manufacturers not only to strengthen its own defence but also to support Ukraine. These purchases aim to ensure uninterrupted, reliable supply chains, boost local production capabilities, and equip both the Lithuanian and Ukrainian armed forces with advanced, locally produced technology.

Removing barriers to defence investment in Lithuania

Our most significant practical reform is the Green Corridor initiative. Its main virtue lies in streamlining territorial planning, land procurement, and construction procedures, which has resulted in the setup period for manufacturing facilities going all the way down from two years to just six months. Combined with a 0% corporate income tax rate for 20 years enjoyed by eligible defence investments, companies deciding to set up operations in Lithuania will be able to gain a genuine competitive advantage in the market.

Recognising that good intentions without practical support are unavailing, Lithuania has implemented a set of comprehensive legal and regulatory reforms designed to accelerate the growth of its defence industry. Case in point, our new Law on Defence and Security Industry establishes a clear framework for international cooperation and provides well-defined incentives to investment.

Export procedures have been similarly simplified, with licenses typically processed in 25 working days or less. This bore almost immediate fruit. When Rheinmetall decided to build its €180+ million artillery ammunition plant in Lithuania – the only 155 mm ammunition facility in the Baltics – these regulatory adjustments played a crucial role in their decision.

Beyond individual projects: building ecosystems

The above-mentioned Rheinmetall investment, expected to be operational by Q1 2027, represents more than a single factory. It demonstrates how major foreign investments can anchor broader ecosystem development – attracting the requisite suppliers, expanding technical expertise, and establishing Lithuania’s reputation as a serious defence manufacturing hub. The case is similar with regard to our partnership with Northrop Grumman to support local suppliers in producing medium-caliber ammunition. Namely, it shows how established players can help smaller nations to develop their domestic capabilities by providing the technical know-how and quality standards they need to break into global defence supply chains.

That said, individual partnerships, no matter how significant, are not enough when it comes to building sustainable industrial capacity. The €300 million “Vytis” initiative, led by our Ministry of the Economy and Innovation, takes a more systematic approach. Rather than simply attracting foreign investment, the initiative aims to develop Lithuania’s capabilities requisite for meaningful participation at the international level.

This program addresses key industry challenges including limited early-stage funding and excessive red tape, which tend to sap the energy out of promising technologies well before they reach commercial deployment. With ambitious targets like tripling defence exports and generating over €1 billion in sector value by 2030, “Vytis” has immense potential. By providing comprehensive R&D support – made possible through market entry – it is expected to raise the competency level of Lithuanian companies wishing to become credible suppliers to major defence contractors.

Talent and technology foundation

Lithuania benefits from strong technical universities – prime examples being Vilnius University and Kaunas University of Technology – that produce top-tier specialists in artificial intelligence, photonics, and quantum technologies. These disciplines will form the backbone of next-generation defence technologies.

This, however, doesn’t mean that we are waiting on these skills to develop organically. For instance, as part of the ongoing push for growing Lithuania’s pool of highly qualified talent, Vilnius College has recently introduced a drone engineering program tailored to address industry needs in a direct way. This kind of targeted educational programming, combined with our existing strengths in software development and manufacturing, will help us create the talent pipeline necessary for sustained growth.

“Realistic” doesn’t mean “unambitious”

Lithuania won’t become a major defence manufacturer overnight, nor should that be our goal. Instead, we’re focused on developing specific capabilities in areas we can compete in effectively – be it specialised manufacturing or high-tech fields like photonics.

Success will be measured not just in export values or employment numbers, but in our ability to be a serious player in boosting European defence resilience. As the global defence market grows toward an estimated €3.6 trillion by 2033, even a small percentage of that market represents significant opportunities for countries able to make full use of them.

In short, by combining strategic geography with practical reforms and sustained investment, we’re building the foundation for long-term success in one of Europe’s most critical industries.